Deregulating the Airlines

Overview

The airline industry has been buffeted by the forces of deregulation since the mid-1970s. Many new firms have entered, some with different price and operating philosophies and some of these have thrived. Other airlines have gone bankrupt. Overall the real cost of air travel has declined considerably; however, the effects have varied dramatically from market to market. Exactly how was this massive experiment envisioned and planned? How has it worked? And how will it work in the long run?Deregulating the Airlines narrates and analyzes the decisions taken by the Civil Aeronautics Board during the transition to deregulation and the reasoning behind the Airline Deregulation Act of 1978. It provides many comparisons of the industry before and after deregulation and uses those data to test the various hypotheses that scholars and politicians have advanced about how markets would behave if regulation were removed. Its findings provide information on both the demand and the cost side that will be important in molding the long-run equilibrium of the industry, and it discusses how quickly the industry is moving toward that equilibrium.For policymakers and students of regulation in particular, this study provides a unique case for contrasting the operation of an industry under close regulatory control and its operation free of such controls. It is able to make use of an unusually large volume of data on the costs, operations, and prices of individual firms to show how markets work and how regulation works.The book's in-depth analysis of the impact of policy changes in the airline industry is drawn in part from the authors' active involvement in implementing the new policies. Elizabeth Bailey is Dean of the Graduate School of Industrial Administration at Carnegie-Mellon. Previously she was a commissioner and vice chairman at the Civil Aeronautics Board. Daniel Kaplan is director of the Board's Office of Economic Analysis. David R. Graham, manager of the Defense Economics Program at the Institute for Defense Analysis, was a Board economist.Deregulating the Airlines is tenth in the series, Regulation of Economic Activity, edited by Richard Schmalensee.